John Sviokla on the Future of Phones

Ever worry that creating an e-commerce infrastructure is going to take too long and cost too much? Consider building on the e-commerce infrastructure that already exists under your nose. Just dig up your last phone bill and you’ll see it. Just as mutts and corn seeds are made stronger by their crazy-quilt heritages, electronic devices show their strength in the number of different ways they are broken up and recombined with other gadgets. Radios and TVs started as furniture but have become ubiquitous, crammed into cars, microwaves, computers and portable stereos. Likewise, computers are leaping off desktops and into devices such as PDAs and mobile phones.

But phones are going to become more ubiquitous and much more important to the next wave of e-commerce growth than any of those other gadgets. Phones are a much better medium for human communication–voice to voice in synchronous time. Make no mistake about why people want phones in their PDAs–they make better, smarter phones than cell phones do.

“Phoneness” will be part of everything and come in every form imaginable–from key chains with phones built into them to PDAs to Happy Meals that include free phones with which you can call your favorite Disney character.

Not interested in how Mickey’s day went? The gadgets aren’t nearly as important as the potential lurking within them. Customers like to be connected. The more often customers talk to you (willingly), the less likely they are to defect to a competitor. DiamondCluster found that when the number of these customer interactions rises from once or twice per month to between three and five times per month (on average), the defection rate of the cell phone customer drops from 13.9 percent to 7.8 percent. Financial services companies have found similar effects. The overall imperative is to get your customer talking to you and talking to you often. Multiple interactions will be beneficial to retention.

Phones will open an exponentially larger and more intensive time window for doing business when they combine computing power with the phone’s ubiquity and “onness.” Unlike the computer, the phone is always available, always running. The psychology of buying and selling is totally different when people have a device with them that is always live.

Infrastructure To Go

Consider too that the infrastructure for doing business on the phone is already well-established. No other industry has the capability to bill for so many different kinds of services right down to the individual level. The Internet doesn’t come close. Yahoo, may know your e-mail address and some basic facts about you, but for every commercial transaction you have with Yahoo you need to break out your credit card. When you are on your phone, the company knows who you are, where you live, with whom you are talking (and soon, where you are). This is a much more powerful knowledge base.

Just as important, phone customers are used to getting these bills and paying them. Adding services to the bill and getting customers to pay for them is much less of a challenge in this context than it is on the Internet. Think about how difficult it has been for Internet merchants to get customers to pay for new services. They have had to fight tooth and nail to build up customer loyalty to the point where they can extract a few measly dollars out of the relationship.

If phones–even cell phones–seem low-tech next to computers, remember that the economics and sophistication of computing technology are converging. In the not too distant future we will have portable phones every bit as powerful as a workstation of today and available in many digital versions of consumer electronic functionality and capability.

We also know that the evolution of the phone will look like the evolution of the personal computer. The PC took off when the components became generic and interchangeable, dramatically increasing the audience of software developers. New low-power consumption processors and a gradual standardization of phone components will bring the same kind of software explosion to phones.

We don’t have to wait to see how the business models behind these new gadgets will work. In Japan, NTT DoCoMo customers are being billed for microtransactions (involving fractions of a yen) to read investment information or feed their digital Tamaguchi pets. In Scandinavia, people there give out their cell phone number as their primary number. European instant phone message traffic is already higher than the total voice traffic of most individual countries.

So, if you’re worried about having missed the Internet revolution, don’t worry, you can still get in on the phone revolution–if you learn how to get close to your phone company. Large mutual fund and brokerage houses like Fidelity, which have been pioneers in the use of wireless technology, can be great partners for telecommunications providers. (See “Wireless: A CIO Special Report,” beginning on Page 76.) There is a fantastic synergy between the needs of the phone companies, which must increase their average revenue per use (known as ARPU), and the desire of a Fidelity to increase customer touch points and decrease churn.

Furthermore, many senior executives at phone companies are facing steep expectations by their investors to grow their businesses. The ability to partner with strong content providers can provide significant advantage if they are open to exploring how new content is complementary to phone storage and usage. The stakes are enormous.

For nontelecommunications executives, the opportunity is to become more conversational with your customer and begin a deeper, always there, always-on type of relationship. First and most urgent, major companies now have the opportunity to cut deals with the major phone companies for placement of their product or service. For any company in a business-to-consumer space, this is the time to be pursuing such partnerships.

But if these experiments are to go anywhere, the phone companies and the companies that create the mobile connections with customers will have to avoid making these services just another circle of voice-mail hell. The cellular connection brings with it an expectation of immediacy and urgency, and if it becomes just another channel for holding Muzak, it could turn away more customers than it adds.

The Bottom Line

This is a chance to catch up if you missed the Internet wave. And if you caught the wave, you can make your lead even bigger. You need to support mobile technology to serve customers right now, not tomorrow. You can cater to each customer, since everyone has a mobile phone. Prices for the technology keep dropping. At the same time, the potential to charge for and track all kinds of transactions increases. Even without the bells and whistles promised, today’s mobile technology–always live and great for forging and maintaining customer relationships–is a must.